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Avoiding gift tax for tuition payment

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Avoiding gift tax for tuition payment [#permalink]

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New post 28 Dec 2015, 01:38
Hello all - I'm looking for advice as to whether this is likely legal or illegal:

Let's say Wharton's first-year tuition is $70,000
When you take out your loans, you take out for the entire student budget, let's say $100,000
The school then pays you the balance ($30,000) so you can pay your rent, buy books, etc.
Okay, understood. But what if my friends/family are loaning me $30,000 for b-school? This is clearly over the gift tax rate of $14,000 as indicated here:
http://www.forbes.com/sites/ashleaebeli ... ax-limits/

So my question is: Can my friends/family pay the school directly, thus generating excess which I would receive as a pay out from Wharton? This would effectively avoid any "gifting" because Wharton is sending me the money.

Thoughts?

Thanks!!

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Re: Avoiding gift tax for tuition payment [#permalink]

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New post 29 Dec 2015, 10:25
Yes, you should be able to that (have your family pay the school directly)

http://www.wsj.com/articles/pay-tuition ... 1435599143 and below as well

Quote:
Gift Tax Exclusion

Section 2503 of the Internal Revenue Code of 1986 discusses gift taxes. A donor may give gifts to any person without incurring gift taxes in any calendar year so long as the amount of the gift falls below the annual gift tax exclusion. The annual gift tax exclusion was $13,000 in 2012 and is indexed for inflation. If the transfer exceeds the annual gift tax exclusion, the donor may elect to use part of the donor’s lifetime gift tax exclusion instead of paying gift taxes. The gift tax exclusion is per donor, so a couple can together give twice the annual gift tax exclusion ($26,000) without incurring any gift tax liability.

In certain cases a transfer for the benefit of a person will not be considered a gift even if it exceeds the annual gift tax exclusion. In particular, section 2503(e) of the Internal Revenue Code of 1986 provides for the exclusion of payments for tuition and medical care from gift taxes.

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Re: Avoiding gift tax for tuition payment [#permalink]

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New post 08 Jan 2016, 07:02
Note: You are NOT taxed if you do not go over the basic lifetime exclusion. The $14,000 gifting limit is if you don't want to hit the basic lifetime exclusion (which I believe right now is ~5.3M).

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Re: Avoiding gift tax for tuition payment   [#permalink] 08 Jan 2016, 07:02
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